How to Set Your Bar Up to Succeed

Owning a bar is an expensive and potentially risky proposition. As with any new business, you budget your costs, forecast your sales, and hope the sales exceed the expenses. But, to be successful, you have to do more than just hope. You need to do your homework and get your detailed plan together first.

You've probably heard "Failing to plan is planning to fail," and it's as true in this business as it is in any other. Successful businesses don't just happen; people make them happen. Sure, some people do get lucky, but most can only capitalize on that luck if they're watching their business and actively managing it.

Here are some tools that can help you keep an eye on your business, evaluate your successes and failures, and reap the greatest financial rewards:

A business plan: Hands down, a business plan is the best tool for figuring out how much money you need to get started, and why, when, and how you're going to turn a profit.

Income statements: An income statement summarizes your expenses and sales and gives you the bottom-line profit for the month (or the quarter, year, and so on).

Cash flow reports: A cash flow report tells you when money is coming in and going out of your bar. It shows you exactly when, where, and how you're spending (and collecting) all that cold, hard cash.

Inventory counts: Counting your inventory on a regular basis is crucial to your success. You buy ingredients (like liquor, juice, or even French fries), turn them into products (like cocktails and food items), and then sell them to your patrons.

Physically counting your inventory and comparing it to what you should have (based on your invoices and sales numbers) tells you how much of your product is actually making it to the tables and bar top in your bar. It helps you see how much you're wasting or, sadly, how much people are stealing from you.

Why hire other people to help steer your bar

Hire an accountant early in the process of setting up your business. She can help you get your numbers together for your business plan, which is a must-do if you're trying to get financing for your venture. After you're up and running, you'll analyze your monthly financial reports and look for ways to improve the numbers. A good accountant, preferably one with restaurant or bar experience, can help.

An attorney can help smooth the start-up process by getting all your legal paperwork in order quickly. He can help you review contracts with suppliers, establish partnership agreements, file your permits, or maybe incorporate your business. Depending on how you set up your business, you may need to draft a partnership agreement or two.

Insurance is a financial necessity for any business owner. You need protection in case a water pipe bursts, a fire breaks out, vandals break in, or — worst-case scenario — someone sues you. Make sure you get a good insurance agent from the beginning.

Why so many bars fail

Ultimately, most bars fail because they aren't run properly. Sure, you can probably think of many examples of bars that didn't make it because they had a landlord dispute or some other unforeseen circumstance they couldn't overcome, but most fail because of poor management.

The most common reasons for failure are:

Irreconcilable differences among the owners.

Initial underfunding of the bar.

Overstocking inventory.

Ignoring or mismanaging cash flow (and ebbs).

Failing to pay appropriate taxes on time.

Skimming, stealing, or other illegal activity.

Death by a thousand cuts. Some owners choose to cut corners in food quality, quantity, cleaning regimens, innovation, and so on over time. Over the course of, say, a year, the bar morphs into a mere shadow of its former self. Along the way, it alienates its clientele, who spread the bad news, leaving the bar without repeat business and with disappointed patrons.

Why other bars succeed

Most successful bar owners succeed through sheer force of will, with a dash of common sense, and business savvy to match. They manage their bars as businesses, with procedures and systems. They watch the bottom line and actively train their employees to provide excellent service.

They purchase their materials properly and price their menus accordingly. They keep their bars clean and their patrons happy. In short, they stay objective and balance their business goals with their mission to help people have fun.